Sneaky Fees

Illustration by John Cuneo
Recently, I renewed my XM Satellite Radio subscription. I had expected the service to cost $13 per month, since that was the amount the company advertised. I found out, however, that in addition to the $13, Sirius XM had implemented a new, monthly $2 "music royalty fee." I was annoyed, but I grudgingly agreed to the new add-on charge and said, "Send me the bill." Well, the Sirius XM rep replied, there was one more thing: I'd have to pay a $2 "invoice fee" if I wanted a paper bill mailed to my house.

Sirius XM advertises its satellite radio service at $12.95 per month. But that amount doesn't count another $1.98 in a 'music royalty fee' that customers pay on top of their regular monthly bill.
That relatively reasonable $13-per-month service I thought I was signing up for ended up costing me $16.95 each month, or 30 percent more than expected, through fees that Sirius XM never bothered to mention in its pitches to renew.

Sneaky fees drive me mad. The number of these nickel-and-dime charges I pay each month has my head spinning. Where did all of the extra fees, charges, and taxes tacked onto my cable, wireless, and Internet bills come from?

Sneaky-Fee Economy

Sneaky fees cost each U.S. resident an estimated $950 each year, according to the Ponemon Institute, a research group specializing in consumer privacy. They show up on bills under names like "OVS fees," "network access charge," or "federal subscriber line fees." None of them are outlandish--maybe $1 here or $3.95 there. But they add up, boosting the total cost of your monthly wireless bill or of an airline ticket you book online far beyond what you thought you were going to spend.

For companies, such miscellaneous charges work like a charm, says Bob Sullivan, author of the book Gotcha Capitalism. "How does a $39 cable bill become a $70 bill? How does a $55 wireless plan cost you $75? The answer is fees," he says. According to Sullivan, surveyed companies from ten markets make $45 billion annually in hidden fees.

Perhaps the most annoying are the fees that make a "free" offer not free at all. For instance, in an effort to keep PC sales strong, many computer makers offered customers who bought a system right before the introduction of Windows 7 a "free" upgrade once the new OS was available. What the companies neglected to tell customers is that many of them would have to pay "shipping, handling, and fulfillment fees" to get their copy of Windows 7. Lenovo is charging all of its customers $17.03. Acer and some other PC makers are waiving the fee, but Compaq, Dell, Hewlett-Packard, Sony, and Toshiba are making some customers pay fees between $11.25 and $14.99.

Wireless Fees

Nowhere do consumers find fees more confounding than on their wireless bill. Maybe it's a $3-a-month charge for a daily horoscope you don't remember requesting. Maybe it's an $18 "upgrade fee" that your wireless carrier failed to mention when you bought your snazzy new 3G touchscreen phone. Or maybe it's a charge for a ringtone you never wanted but came with a "free" offer. Whatever the source of the fee, if you've had it with your cell phone company's billing practices, you're not alone.

The U.S. Government Accountability Office determined that one-third of cell phone owners found unexpected charges on their bills or complained to the agency about having problems understanding their bills. Worse, according to the GAO, one in five customers who contacted their wireless carrier were dissatisfied with their carrier's efforts to resolve the problem.

What gives? Experts say cutthroat competition drives wireless carriers to push down the advertised monthly cost of their plans. The companies make their real money with ancillary fees. "Once you sign that multiyear contract, you're right where they [wireless carriers] want you--trapped," Sullivan says. And if you want to part ways, you'll have to pay an early-termination fee.

According to Verizon Wireless's own estimates, customers who sign up for the company's Nationwide Basic plan--advertised at $40 per month--may actually end up paying as much as $55 each month after 'taxes, surcharges, and fees.'
Verizon Wireless is typical of most carriers: It advertises a low $40-per-month Nationwide Basic plan and adds charges on top of that. Verizon's Nationwide Basic plan details state that first-time customers pay a $35 activation fee and can expect to pay between 5 percent and 37 percent more each month in "tolls, taxes, and surcharges." That doesn't include charges for going over the plan's preset limits for texting, data transfers, and voice minutes.

One of Verizon's fees is a monthly $0.92 "administrative charge." Verizon describes the charge on its site as one of several fees that "aren't taxes, aren't required by law, are kept by us in whole or in part, and the amounts and what's included are subject to change." Essentially, if you're a Verizon customer, you pay the company 92 cents each month to cover the cost of the company's doing business with you. It's the kind of charge that always used to be included in a main bill. After all, when you go to the mall, you don't pay an extra charge to have the cashier total your purchases; that cost is built into the price of your sweater. But we're moving to an economy in which companies attempt to hide their costs--and their profits--in small charges that they hope we won't notice, or won't know about until we've signed a contract. Consumer advocates say that this "fine-print" pricing obscures the true monthly cost of a wireless plan.

I asked Verizon Wireless spokesperson Michael Murphy why the company doesn't roll the nontax fees into the advertised monthly price so that consumers could know what their final bill would be. Murphy says that since surcharges and fees vary by market and are subject to change, they can't be rolled into one advertised price.

Sullivan doesn't buy it. The real reason Verizon is sneaky, he says, is that everyone else is too. "You can't be the only company with transparent pricing, or you'll always appear to have the highest prices."

You can't always blame your wireless carrier for sneaky cell phone charges, however. Wireless customers can easily get stuck spending $10 every month on third-party services for ringtones, wallpaper, and daily jokes delivered via SMS. Many customers who complain about such charges say that they believed the services were free or that they would be charged a one-time fee, not committed to a monthly subscription. And some claim that they never requested the service they're being billed for.

Within the last couple of years, AT&T Mobility and Verizon Wireless reached similar yet separate settlements with Florida's Attorney General Bill McCollum related to sneaky charges. McCollum had accused both carriers (plus Alltel, which Verizon was in the process of acquiring) of allowing advertisers to put out misleading offers for "free" ringtones, wallpaper, and horoscopes, and then to bill customers for services they didn't want or thought were no charge.

In June, Verizon Wireless reached an agreement with McCollum. Without admitting to any wrongdoing, the company agreed to reimburse its Florida customers up to $30 million for unwanted third-party charges. As part of the settlement, Verizon agreed to set stringent advertising standards that prohibited the word "free" from being used without the "clear disclosure of the actual price." AT&T Mobility reached a similar agreement in February 2008 when it agreed to return up to $40 million in charges to Florida consumers.

The wireless telecommunications industry trade association CTIA has worked to create voluntary standards for carriers to make bills clear, says John Walls, a CTIA spokesperson. Despite the industry's efforts, though, problems persist. Consumer complaints filed with the FCC relating to billing and rates for wireless services rose from 8822 in 2006 to 10,930 in 2008, an increase of approximately 24 percent.

Next: Triple-Play Plans Triple the Annoyance

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